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Understanding Apache’s Canada Exit and Its Impact on Permian Operations

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Aug. 21 2017, Updated 7:37 a.m. ET

Apache’s Permian production

In 2Q17, Apache’s (APA) production in the Permian Basin averaged 146,000 Boe (barrels of oil equivalent) per day, compared with 168,000 Boe per day in 2Q16. The company operated an average of 17 rigs in the region in 2Q17. Permian production made up 38% of APA’s total production in 2Q17.

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Permian focus and Canada exit

Permian is a key focus for Apache in 2017. The company expects to spend 63.0% of its 2017 spending in the Permian Basin this year.

In line with its Permian focus, Apache announced in July that it had decided to exit its operations from Canada. The Canada exit is expected to be complete in August 2017.

Specific asset sales

In July 2017, Apache announced that it had agreed to sell its Apache Canada subsidiary to Paramount Resources. In a separate transaction, the company agreed to sell its Provost assets in Alberta to an undisclosed private company.

In June, Apache announced that it had decided to sell its Canadian oil assets to Canadian company Cardinal Energy.

APA’s management noted in the 2Q17 earnings conference that the sales in its Canada exit would further streamline its portfolio and enhance its North American leverage to the Permian Basin.

APA’s new expectations

After its Canada exit transactions, APA expects its Permian production to account for 61% of its total production by 4Q18, compared with 57% of production while its Canadian assets were still in play.

APA noted that the Canada exit reduces its annual overhead costs by ~$70 million and eliminates $125 million of planned capital expenditures in 2018. APA also pointed out that these transactions would be accretive to its 2017 earnings per share and cash margins.

APA’s cash margins in the Permian Basin were $17 per boe (barrels of oil equivalent) in 2Q17. Its cash operating cost was $12 per boe, while its average price realization in the Permian was $29 per boe.

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